Margin financing to commence from March 14

Published: March 5, 2011
Email
Stocks of 27 companies will be eligible initially, mutual funds and SECP discuss inclusion of income funds as financiers. DESIGN: ESSA MALIK

Stocks of 27 companies will be eligible initially, mutual funds and SECP discuss inclusion of income funds as financiers. DESIGN: ESSA MALIK

KARACHI: 

After months of long-drawn deliberations, investors at local bourses will finally have a leverage product at their disposal, as finance minister Abdul Hafeez Shaikh will inaugurate a margin trading system (MTS) at the Karachi Stock Exchange today.

“Investors will be able to avail the software to access financing for their share of purchases from March 14,” National Clearing Company of Pakistan Limited (NCCPL) head of operations Badiuddin Akber told The Express Tribune.

“During next week, all members will be able to sign relevant agreements, install adequate hardware and implement the software needed to run MTS,” revealed Akber. “March 14 will be the first day with MTS fully implemented and functional at all the three stock exchanges of the country,” he added.

NCCPL officials have already conducted multiple training sessions aimed at introducing the staff of brokerage houses to the use of the new system.

Under the newly-implemented Securities Act 2011, financial institutions including mutual funds, banks and non-banking financial institutions are eligible to participate as financiers, as are individuals. However, within mutual funds, income funds have been barred from participating in margin financing.

Well-informed sources revealed that mutual fund companies and the Securities and Exchange Commission of Pakistan (SECP) have held consultations regarding the inclusion of income funds to MTS and it is likely that regulations will be modified to include income funds by the time the system is rolled out in mid-March.

Initially, stocks of 27 companies will be eligible for margin financing through the new software and changes in the list will be notified to stakeholders by the relevant stock exchanges 30 days before their implementation. Analysts expect the list of eligible securities to grow larger in coming weeks.

Commenting on the likely impact of the availability of margin financing at the bourse, Karachi Stock Exchange (KSE) Director Mohammad Sohail said, “the market has already responded positively to the news, as shown by the surge in equity prices during Friday’s trade as well as the improved volumes witnessed on the last day of trading for the week.” The value of equities traded at KSE on Friday also surged to a six-week high of Rs8.9 billion.

However, market veterans are viewing the reintroduction of the leverage to equity trade furtively. “Don’t expect participation to go through the roof on the first day or prices to start snapping upper locks,” warned Arif Habib Investments Director Ehsan Mehanti.

“Investors will take time to familiarise themselves with the usage of the new system, and confidence will grow gradually,” he added.

However, Mehanti expressed confidence, saying, “Stock market activity will improve in coming days, as individuals and institutions start utilising MTS and that will in turn lead to better price discovery as well.”

He also expressed hope that the apex regulator will allow income funds to take part in margin financing by the time MTS becomes operational.

Securities Rules 2011 were promulgated by the federal government on February 18, paving the way for the introduction of MTS at the bourses. Under the new rules, a maximum mark-up rate that can be charged in the MTS market has been fixed at Kibor plus eight per cent. MTS will bring back margin financing to the bourses after a gap of almost two years, when the Continuous Funding System (CFS) MKII was shelved in April 2009.

Analysts expect that liquidity available to market participants will improve immediately as a result of the launch.

Eligible companies

Arif Habib Corporation

Adamjee Insurance

Askari Bank

Azgard Nine

Attock Refinery

Bank Alfalah

Dera Ghazi Khan Cement

Engro Corporation

Fauji Fertiliser Bin Qasim

Fauji Fertiliser Company

Hub Power

Kot Addu Power Company

Lotte Pakistan

Lucky Cement

MCB Bank

National Bank of Pakistan

Nishat (Chunian)

NetSol Technologies

Nishat Mills

OGDC

Pakistan Reinsurance

Pakistan Oilfields

Pakistan Petroleum

Pakistan State Oil

PTCL

Sui Southern Gas

United Bank Limited

Published in The Express Tribune, March 5th, 2011.

Facebook Conversations

Reader Comments (5)

  • tariq
    Mar 5, 2011 - 8:17AM

    years biggest mistake is going to be implemented that is margin trading secondly could one tell me why was discontinued at 4800 level index and now again starting at 12000 level because ?Recommend

  • Mar 5, 2011 - 11:49PM

    @tariq

    The answer is obvious MTS is being launched at the wrong time to benefit the wrong people. It is highly likely individual investors will suffer because of greed and inexperience.Recommend

  • fahad
    Mar 6, 2011 - 2:52AM

    pakistan stock market is foolish market in the world please some one clear me pakistan economy situation is in worst and we r facing weak economy and politicaly corruption in pakistan also facing the balance and payment issue and fiscal deficit problem, and internationaly oil prices going high and high this panic for pakistan weak economy day by day how is MTS recover the market numbers do u dont think this is all fake numbers and over value showing reason on MTS my one question to the stock exchange managment how index recover from 4800 to 12000 without MTS that time MTS was not available that time when index run from 4800 to 12000 level mts come now
    this all favour goes to big members favour they want to trap investers i strongly recommend to inverster kindly dont buy at this level wait for positive news about economy side not focus on MTS trend invester should side line from market for time being im watcing index level 7000 again in few months.Recommend

  • yawar
    Mar 6, 2011 - 11:42AM

    it should not be launched at this time i.e when market is touching 12000 mark (12800 highest mark a month ago) ,Political instability prevails,Raymond issue is still unsolved .Market has managed to survive without MTS and now with the intro of MTS the market will be once again in the hands of Few Key Players.It must be noted that that not only on buying side volume will be increase but also there will be 2x increase in sell volume ( in case of any negative development )thats because they will be selling not only their custody held shares but also the shares that they have bought on Financng.Recommend

  • yawar
    Mar 6, 2011 - 11:46AM

    can anyone tell me what would happen to Future Contracts with the intro of MTS?
    i.e there will be low or more volumes or future contracts would be abandon or Something Else?
    and how MTS OR MF would work ( i dont know the exact working mechanism ) Recommend

More in Business